EITC Claiming Across Zip Codes

ABSTRACT
This brief provides a fresh look at the role of the EITC by utilizing zip-code level data on taxes and demographics. In the following sections, we focus on the relationship between EITC claiming rates (i.e., the percent of tax returns receiving the EITC) and poverty rates, the demographic characteristics of zip codes with high EITC claiming rates, and the variation in EITC claiming rates and average EITC amount cross counties.

Introduction

Since its creation in 1975, the Earned Income Tax Credit (EITC) has played a major role in the U.S. safety net. In 2011, 27.9 million low- and middle-income families received the EITC, which is designed to alleviate poverty and promote employment among working families. In 2012 alone, the EITC lifted the incomes of 6.5 million people—including 3.3 million children—above the official poverty measure. The EITC has also been shown to be one of the most effective ways to encourage work, particularly among single mothers working for low wages; the EITC expansions that took place between 1984 and 1996 accounted for more than half of the increase in employment among single mothers during that period. Furthermore, recent research suggests that the children of EITC recipients perform better in school, are more likely to attend college, and have higher wages as adults.

A household’s EITC benefit depends on income, marital status, and number of children; notably, households without children receive almost no benefit. As earned income increases, the amount of the credit rises until it reaches its maximum level. At a certain income threshold, the EITC begins to phase out until it reaches zero. For example, in 2013 a married couple with two children would receive the maximum EITC of $5,370 for earnings between $13,430 and $22,870, after which the credit amount would decline with earnings. (A married family of four earning poverty-line income of $23,550 would receive a credit of $5,224, slightly below the maximum EITC.) Importantly, the EITC is a refundable credit: if the credit’s amount exceeds a family’s income tax liability, the remainder of the credit is paid as a tax refund.

The goal of this brief is to provide a fresh look at the role of the EITC by utilizing zip-code level data on taxes and demographics. In the following sections, we focus on the relationship between EITC claiming rates (i.e., the percent of tax returns receiving the EITC) and poverty rates, the demographic characteristics of zip codes with high EITC claiming rates, and the variation in EITC claiming rates and average EITC amount cross counties.